U.S. Regulator Says Gold Scams Rise with Gold Prices

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A U.S. financial regulator warned Wednesday of multiplying scams involving investing in gold stocks as the price of gold has skyrocketed in recent months.

As gold prices sank for a second day from the record $1,913.50 an ounce, the Financial Industry Regulatory Authority said that investors were being caught out by both listed mining companies that overstate their gold reserves and private investment schemes that directly steal their money.

"Some of the stocks and opportunities being promoted have precious little value, and others are outright frauds," Finra said in a statement.

"Many gold-related investment scams involve the stocks of gold mining and/or exploration companies. The stock value is often based on gold reserves that are difficult to estimate, much less verify," it said.

Finra cited one Florida-based mining company that claimed last year it had $1 billion in gold reserves in an Ecuador mine.

The Securities and Exchange Commission later filed a complaint against the company, saying that in fact that it had no money, ongoing operations, or employees.

In addition, Finra warned, "Be wary of 'free lunch' programs that purport to provide educational information about gold investing. In June 2010, the SEC charged six individuals with running a Ponzi scheme that bilked more than 3,000 investors out of $300 million," it said.

"Rather than invest the money, the firm's salesmen used the assets on lavish home renovations, mortgage payments for members of their extended family and the purchase of a luxury fishing resort in South America."

Finra's warning came as gold prices lost more than eight percent in two days following a long climb driven both by safe-haven seekers and speculators.

Gold prices dropped sharply to near $1,750 an ounce in late New York trade on Wednesday.

Despite the lack of a firm underlying physical demand for gold by consumers and industry, in recent weeks gold analysts have predicted the price will further surge to $2,000 and beyond.

"As long as global investor interest remains robust, prices are set to venture further to new highs," Barclays Capital analyst Suki Cooper told Agence France Presse Tuesday.

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